THE STATE

Anti-Tax Group Reverses Stance on Loan to Fund State Pension System

In deal, organization would drop suit against state if workers take on larger payments.

SACRAMENTO — The anti-tax group that last year successfully sued to block the state from borrowing $2.2 billion to cover payments into the pension system for government employees is now willing to support such a loan.

The Howard Jarvis Taxpayers Assn. has entered a settlement with the administration of Gov. Arnold Schwarzenegger that would allow the state to borrow nearly $1 billion to make the payments if the loan is accompanied by a plan requiring state workers to pay for a bigger share of their pensions.

Jon Coupal, president of the association, said his group has reversed its position because the governor's proposal would generate enough savings to pay back the bond many times over.

"The governor realizes that the pension gravy train just can't go on forever," Coupal said. "What he is proposing is not just a lick and a promise, but actual language in the budget that would bring the costs down. The Democrats [in the Legislature] weren't proposing any reform. They were heading in the opposite direction.

"We're granting overly generous pension contributions, and they wanted to borrow money to do it," he said.

But Democrats, who hold majorities in both the Assembly and Senate, say the settlement will offer little help in closing the state's $14-billion budget gap. They say the governor's proposal would cut too deeply into the retirement plans of state workers, and they have no intention of approving it.

"What the Howard Jarvis Taxpayers Assn. is saying is, 'If you don't do pension take-aways in the way we want, we will come right back and sue and attempt to take away the bonds,' " said Assembly Budget Committee Chairman Darrell Steinberg (D-Sacramento). "It's always important to read the fine print. They have this hammer over everybody's head."

Steinberg said the administration must engage in good-faith discussions with the state's public employee unions before Democrats will be ready to sign off on any major reductions in pension payments.

Democrats say those negotiations are going to take more than a few weeks, so they are proposing putting the pension bond on hold until next year. Instead, they want to use more of the economic recovery bond money authorized by voters in March to close this year's shortfall.

The bond to cover the payments into the pension system was initially proposed by former Gov. Gray Davis and approved for the 2003-04 budget. But in October a Sacramento County Superior Court judge blocked it.

The judge ruled the plan violated a provision of the state constitution that prohibits borrowing to cover routine expenses without voter approval.

The proposal, however, resurfaced in Schwarzenegger's budget in January. He proposed borrowing $929 million to cover the pension payments. But it would be linked to a proposal requiring new state employees to pay an additional 1% of their salaries into their pension plans.

In proposing the plan, administration officials noted that California state workers receive retirement benefits more generous than in many other comparable states. The budget also said that the state contribution into the pension plan "has skyrocketed to more than $2.1 billion in 2003-2004, more than 13 times the contribution made four years ago."